Five Hundred Words 12/06/2018

Thursday, December 6, 2018

Daily Writing

Questions I would like to answer eventually

What is the current bull case for the overall economy, and global equities in particular?

What events in the late 1980’s led to the collapse of the Soviet Union?

Are there any parallels between USSR in late 1980’s and China today?

Market Overview

The United States has requested the extradition of the CFO of Huawei, Wanzhou Meng, from Canada. Meng is also the daughter of Huawei founder Ren Zhengfei.

How did Canadian authorities have the right to arrest Wanzhou Meng?

US law prohibits the exports of specific US-origin technologies in certain countries. When Huawei pays to license specific US tech, it promises not to export to certain countries like Iran. So it is not unreasonable for the US to punish Huawei for flouting this US law.

The Dow opened down 400 points amid China trade tensions stemming from the arrest of Meng, and fears of economic slowdown.

I believe there are strong headwinds coming stemming from China, and our view is that a recession is on the horizon. To be wrong would require a major turnaround in the Chinese economy, and interest rates must remain at historic lows.

We’ve exited all positions to mitigate risk and we now sit solely on cash. We do not have any equity or bond positions.

From Bloomberg:

“The biggest qualm is the trade war escalating and this is haunting the markets,” said Naeem Aslam, chief market analyst at Think Markets U.K. in London, in an email. “It is arduous to find bulls in the market and it seems to me that this game is about to become uglier.”

From Beijing’s perspective, Xinjiang represents an existential threat to the CCP

Entrenched industrial, military, and legacy regime interests

“Political paralysis produced by the powerful forces who opposed economic reform was the ultimate cause of the Soviet Union’s collapse.”

Hypothesis:

Xi Jinping is terrified of losing authority over the military and regional elites in China. If China enters economic downturn, Xi will lose his ability to influence these groups. Therefore, Xi has no choice but to continually consolidate his power to ensure his total control.

I’m most interested in studying the collapse of the Soviet Union to gain an understanding of how modern superpowers decline. I want to understand what sorts of events transpire on the ground during a period of economic turmoil. Who are the victims? Who are the aggressors? Who gains, who loses? Which groups or individuals have the most to lose from collapse? Which individuals or groups stand the most to gain from collapse? These are the types of questions I am hoping to answer before I go to China.